Electronic tax stamps: pros and cons of proposed measure

The Minister for Finance and Planning, Dr Philip Mpango (pictured), has tabled the budget for 2018/19. Like in previous years, the budget proposes several changes with a view to among other objectives increasing revenue and to widen the tax base.

I will comment on the proposed introduction of Electronic Tax Stamp to replace the Paper Tax Stamp to enable the government to obtain production data in real time basis to make it possible for the government to determine in advance the amount of taxes to be paid. The taxes that are targeted are mostly excise duty and value added tax (VAT).

Excise duty is a tax levied on goods produced within a country. It is a tax on production levied at production points such as factories. VAT is a tax on consumption collected at selling points. In Tanzania, excise duty is also levied on some services e.g. money transfers, airtime and on imported goods such as motor vehicles. As it is the case with VAT and suppliers of goods or services, excise taxes are at the end of the day borne by the end consumer and that manufacturers are simply collection agents of the government.

Electronic tax stamps are usually implemented through installation of a certain special machine at the end of a production line. The machine would do the stamping of the beer or wine bottles or cigarette packs and automatically submit the count in real time via the internet to the Tanzania Revenue Authority (TRA). This is well and good in an environment where things work efficiently as is the case in some countries in the world. I was once on a train in Zurich, Switzerland, which left the station four (4) minutes late and was impressed when an apology was issued for the delay. Apparently the four minute delay was unusual.

Take for example, a beer producer who has a production capacity of a given number of bottles per hour, translating into a certain number of bottles per day, month, etc. An internet outage would force the production manager to halt production during that time because the installed electronic stamping could not be done during the system outage. This is similar to when an ATM fails to dispense cash due to a system outage. Lower production would mean reduced excise duty collections, reduced revenues and profits, reduced corporate tax and VAT collections. It could eventually cause job losses.

There is also an issue of who is going to bear the cost of the electronic stamping system, which is not mentioned in the minister’s speech. Will it be the manufacturers or the government? It would be fair for the government to bear the cost because manufacturers are simply collection agents of the government. It can do so by making the machines tax deductible. After all, it is the government who will be the beneficiary of the monitoring system. And what will happen in labor intensive production?

Much as I support the government’s efforts in deploying modern technologies to increase revenue collection, I am of the opinion that it should do so carefully taking into consideration the realities on the ground. There is need to tie up the nits and grits of this new tax compliance method before it is fully rolled on. We should learn from our experience with EFD technology.

After all, the goal is to widen the tax base and collect more taxes by creating a taxpayer friendly regime among other benefits.